This post is largely about the future of domestic demand curves in the US. However, to understand just how wretchedly the global economy is doing, take a look at the latest round of Markit PMIs, and Germany’s manufacturing PMI for July. Pay some attention to the far Asian numbers, because those have started running in tandem with the exception of Indonesia, which benefits from Japanese energy problems and Chinese outsourcing. This is now a global downturn with some epic staying power. The cure can only come from lower prices adjusting final demand upward, and lower prices won’t be that quick to appear. India’s power problems are going to affect their current-quarter production and GDP negatively, and the monsoon isn’t that great either.
So the takeaway is, do not purchase large consumer goods, they will be cheaper by the end of the year?
“The cure can only come from lower prices adjusting final demand upward, and lower prices won’t be that quick to appear.”
So, in entirely hypothetical terms, oughtn’t the goal of public policy to be to bring on lower prices as quickly as possible? In this regard, shouldn’t monetary policy (inflation is a monetary phenomenon) and fiscal policy (government deficits) be reversed to a contractionary position?
IMO, it’s pretty clear that the inflationary position has not been working for some time, if it did work at all in the aftermath of 2008. I note that the Harper government has essentially abandoned “stimulus” in favour of productivity-based approaches to economic growth, while the BoC has been using “moral suasion” for some time in an effort to talk down real estate prices; also, QE3 seems to be off the table, at least for the moment, from the Fed.
And speaking of coherence, would it not be helpful if provincial goverments (like the ones in central Canada — how about quitting spending?) opted for the same kind of policy, if the goal were to bring on lower prices for stuff?
Just askin’…
Sorry, one other point:
I have been doing some renovations of late to facilitate my parents’ move into our home, and have found a number of incredibly capable tradespeople, in the middle of the summer, readily available at very affordable rates, so maybe the lower price thing is starting to kick in (SW Ontario perspective only).
I’m not one to suggest that globalization is bad per se, but analyses like this show how utterly f’d we are in this modern era where we have (a) only one giant “global” economy, and (b) the means to communicate facts about this economy worldwide in an instant. Now, rather than individual countries responding to actual circumstances that affect them (eg demand from US for lumber is down), we now have everyone reacting speculatively to what completely irrelevant countries (eg Greece) say they might do or what abstract market indicators suggest is possible on the other side of the world.
It’s changed from cause-and-effect to international gamesmanship.
You know, the one term in that quote that sticks out in my mind is “Chinese outsourcing” (to Indonesia).
Kinda goes against the usual narrative, doesn’t it?
In all other recessions it was just a matter of re starting or rebuilding factories and re hiring a work force when the recession ended. The factories are now in 3rd world countries, as well as the work force. As almost all recessions are followed by war, I guess we can be grateful that most of our military complex has not been outsourced.
Stock up on dry food and save up for that radiation suit, as well as a good supply of ammo. There will be full employment for the survivors. This has the beginning of a good book. Hope it’s fiction. Taking tinfoil hat off now and waiting for reply from all knowing bloggers that see a different solution and can pump a little sunshine up my ass. You know…..a little hope and change.
Oh, on the outsoucing part.
http://www.cnn.com/CNN/Programs/lou.dobbs.tonight/popups/exporting.america/content.html